Production function analysis for smallholder semi-subsistence and semi-commercial poultry production systems in three agro-ecological regions in Northern provinces of Vietnam

Dinh Xuan Tung and S Rasmussen*

National Institute of Animal Husbandry, Hanoi, Vietnam
dxtung168@hotmail.com
*The Royal Veterinary and Agricultural University, Box 1870 Frederiksberg, Copenhagen, Denmark
sr@kvl.dk

Abstract

A formal cross section survey of 360 smallholder poultry keeping farms located in three agro-ecological regions in Vietnam was conducted. Cobb-Douglas production functions were applied to analyse and compare semi-subsistence and semi-commercial smallholder poultry systems in three regions. The general assumption is that the poultry production output at the farm level depends on the number of birds, feed amount, labor amount, garden size, income level and veterinary costs. In this study statistical tests were conducted to analyze the differences between regions and production systems.

The results from the analysis of production functions shows that the coefficients of flock size, feed amount per bird, labour amount per bird, household income level, and veterinary costs were highly significant in different models. Garden size has a significant influence only among the poultry farmers in Midland region. Regardless of region and system, the results indicate that the farm poultry output was most responsive to the variable feed per bird. However, the influence differed between production systems and regions.

The major conclusion of the analysis is that there was a significant difference in the estimated production model between the three regions. However, within regions, there was no significant difference between the two production systems, except in the region Highland.

Key words: Cobb-Douglas function, poultry production systems, production region, production systems, semi-commercial, semi-subsistence, Vietnam

Introduction

Poultry production in Vietnam is characterized by small-scale farms, in which birds are fed with mainly farm-produced grain combined with scavenging. This low input/output practice has been a traditional component of small farms in almost all areas of the country.

There are two main poultry production systems in Vietnam, semi-subsistence and semi-commercial poultry systems (definitions and characteristics are presented in section 2.1). In semi-subsistence poultry systems, small flock of local breeds are left to scavenge in backyards and garden area and fed with local available feeds. The salient features of the semi-commercial poultry systems are characterized by larger flock size with local or improved breeds and supplementary feeding with either grain or concentrate feeds or both. Semi-commercial farmers may have a better position for applying new technologies, thus they are more technically efficient than semi-subsistence farmers. Apart from that, farmers residing in different ecological regions have various comparative advantages, which also affect their production.

Poultry production plays an important role in providing food and cash income for villagers. The cash income in turn helps to contribute to poverty alleviation. Most of the studies in the field of village poultry production have focussed on characterising the production. (Dessie 1996; Swatson, et al 2001; Tadelle, et al 2003; Missohou, et al 2002; Aganga, et al 2000; Muchadeyi, et al 2004; McAinsh 2004; ); on feeding (Gunaratne et al 1994; Minh 1999; Gunaratne 1999; Rashid, M. 2003, Minh et al 2004; Henuk and Dingle 2002); on social-economics (Chitukuro et al 1997); on disease (Aini 1999; Tu 2002).

In this paper we analyse and compare the two poultry production systems mentioned by estimating Cobb-Douglas production functions based on data from a survey carried out in 2003. Results from such a type of analysis have not been published before. To the best of our knowledge, only Cevrger et al (2003) used multiple regression models to estimate the impact of several factors affecting the profitability of broiler production in Turkey, and Ojo (2003) applied the stochastic frontier production function for analysing technical efficiency in Nigerian egg production.

The specific purpose of the research was to analyze and compare the production within the two poultry production systems in three ecological regions in Vietnam.

The paper is organized in the following sections. In section 2, main characteristics of two production poultry systems and three regions are described. Section 3 deals with research methods, which include field research design, sample selection, and data collection. Section 4 presents research hypotheses, which are developed based on the general understanding of the production systems in the three regions. In section 5 the method of data analysis is discussed and the results of the statistical analysis are presented and discussed. The final section includes some conclusions.

The major conclusion based on the analysis of 360 semi-subsistence and semi-commercial poultry farms in three ecological regions is that there is a significant difference in production technology between the three regions, but that the production systems did not show significant differences between the estimated Cobb-Douglas production function.

Main characteristics of production systems and ecological regions

Poultry production systems

Based on criteria of feeding systems and flock size, the poultry production systems in lowland, midland and highland regions can be categorized into two groups, including (i) Semi-subsistence poultry systems; and (ii) Semi-commercial poultry system.

Semi-subsistence poultry system

It is estimated that around 90% of smallholder poultry farms carry out poultry production as semi-subsistence production system (Oanh 2000). This system has existed for the long time in all parts of Vietnam, where poultry production is an integrated part of a diversified farm. A family may keep up to 50 birds, confined to mainly indigenous breeds. The most common breed is of local Ri breed, which is characterized by small bodyweight of 1.2-1.6 kg at 6 months of age; hens produce 10-15 eggs per clutch, equivalent to egg yield of from 45-60 eggs per hen per year, depending on management practice. Chicks are hatched from their hen eggs, but sometime farmers buy chicks from local markets to supplement their flock. Most of farmers keep poultry all year round.

The characteristic of this system is low inputs/low output. The birds are left to scavenge in the backyards or in the garden areas and the feed picked up in the garden area are supplemented with limited amount of home produced grain such as paddy rice or maize, and kitchen waste. The amount of feed given to birds does not focus on production efficiency, and depends heavily on the availability of grain that farmers have in their storages and eating needs from their birds. Commonly, birds are freed and fed (as a breakfast) in the morning and fed again in the evening and then locked in during the night in houses. Poultry housing is simple, it is made by bamboo, wooden with thatched or tile roof.

Little labour and investment are required for this system, since it is considered as a side-line activity, birds are not been given proper attention concerning disease prevention and treatment, and therefore the mortality rate is high. Normally, when disease occurs farmers go to the local drug store to buy medicine based on advice from the shopkeeper, and they treat poultry disease by themselves. Farmers who practice this system still work in crop or other activities for their main livelihood.

Farmers can sell different poultry products when they need cash, such as chicks, growers, broilers, hens, cocks, eggs or other poultry species like ducks. Selling products normally takes place in local markets or through by-pass traders (assemblers), or by sale directly to customers or other farmers.

Semi-commercial poultry farmers

This system is the combination of the traditional system and the improved technologies. Breeds kept in this system consist of specialized or a mixture of local and improved breed with the flock size ranging from 50 to 200 birds. Generally, chicks of improved breeds are bought from local hatcheries and local chicks are from local markets. The majority of semi-commercial farmers can keep a certain number of laying hens to produce chicks for fattening. In the case hat they do not have enough hens to produce the chicks as they need, they can exchange eggs to other farmers in order to get larger number of eggs to be hatched. By doing so, farmers have bigger flocks in certain periods. This type of collaboration is sometimes not only based on economic considerations, but also on social relationships. From hatching to one month of age, chicks are kept with their hens in cages to brood and protect them; older birds are allowed to scavenge in backyards or in the gardens at certain times during the day and brought back to their housing in the evening. The housing varies from permanent to simple houses, made by mainly local materials.

Besides the naturally available feed resources such as worms, insects, pest, vegetable, and grass that the birds can scavenge, they are also fed by using grains and/or commercial feeds that are bought from local feed shops. Although these farmers have the financial capacity to buy some concentrate feed, this system is still a part-time or supplementary generated income activity on these households in the three regions. Household members are still engaged in other farming activities like cropping, or other livestock or off-farm employments.

Measures on disease prevention, treatment and management are given higher consideration compared to those in semi-subsistence farmers, including vaccination. Chicks are paid more attention and given better feed rations.

Like semi-subsistence farmers, outputs of semi-commercial poultry farmers are eggs, live birds, which include chicks, growers, broilers, hens, cocks and other poultry species like ducks and geese. These outputs are either consumed by the households or are sold to different buyers like assemblers or wholesalers and consumers.

This production system may be a transition stage from the semi-subsistence to commercial poultry system. Farmers who are involved in this system mainly are former government employees, current local officers or wealthy farmers who have permanent income and skills, especially knowledge of market conditions. It seems that know-how and capital are important factors abreast for development of commercial poultry production.

General features of the regions

The three regions (Lowlands, Midlands, and Highlands) where data was collected are shortly described in the following. More detailed information can be found in Tung (2003).

Lowlands

Topography is almost universally flat, river delta land with an average altitude of 3-6 m above sea level. It is appropriate for irrigated cropping systems. Per capita land area is limited to 500 m². It is the most densely populated region in the country, characterised by intensive rice production and pig husbandry. The major agricultural activity in the area is rice growing, utilizing a double rice cropping system intermixing with one cash crop in winter such as maize, bean, or vegetables. Livestock production is an integrated farming activity for the majority of the households. This region is located close to consumption centres, and limited land areas, combined with inadequate off-farm employment opportunities cause a large segment of youth immigrate into urban areas for employment. Inhabitants are mainly Kinh group. In general, infrastructure and the level of education in this area are good.

Midlands

The typology consists of a mix of relatively flat rice production land and clay soil foothills. Apart from rice as a main crop, other crops such as groundnut, bean, and sugar canes are also important. Cropping systems in this region are one or double rice crops on low laying land, and cassava or sugarcane on rolling soil hilly land. Per capita land area in the region is 3.5 times higher than that of their counterpart living in lowland region. Small livestock plays an important role in farming households. Besides poultry, pigs and cattle production are also an integrated farming activity. The inhabitants are mainly Kinh and Tho groups. Infrastructure and education level in this region are better than in the highland area

Highlands

This region is a mountainous area; the topography is of a mix of relatively terraced rice cropping land and limestone mountains. Crops grown in this region are mostly native varieties, characterized by low productivity. Land for rice plantation is very limited (around 80 m² per person). Cassava is planted on hilly land, which is 500 m² per capital and bamboo growing is performed on the mountainsides. The inhabitants are mainly ethnic minority groups such as Thai, Tho, Dao... Villager's livelihood depends on natural and planted forest like exploitation of timber. The infrastructure in the zone is very underdeveloped.

Poultry Inputs-Outputs clarification

Outputs

Both semi-subsistence and semi-commercial poultry farmers in the three regions keep poultry flocks as an integrated farming activity, consisting of hens, cocks, chicks, growers, broilers and other poultry species such as ducks and geese. The output of this type of production includes eggs and all of these birds' categories. Farmers can use eggs and broilers for both home consumption and sale, but when cash is needed, hens, cocks, chicks, growers, broilers and other poultry species such as ducks and geese are also sold to get money. These products are not homogenous.

Inputs

In order to involve in poultry production, apart from what birds can scavenge in backyard or in garden areas, farmers have to feed them with grains such as paddy rice, broken rice, maize, rice bran, cassava. These grains can be home produced or purchased from market. On some farms, especially semi-commercial farms, birds are also fed with purchased concentrate feed.

Sometime farmers have to buy feed, medicines or even birds for replacement. To do so requires capital which is provided by using their own cash or by taking up loans.

As mentioned previously, poultry relies partly on scavenging feeds in gardens areas. Consequently, the size of gardens, where the birds can search for food has an impact on feed cost.

To take care of birds including, feed preparation, feeding, watering, cleaning shelters and disease prevention and treatment, farmers have to spend time on these activities. In household farms, the households typically consist of three adults and two children, with the wife being the main responsible for poultry production. However, this proportion changes slightly for the group of semi-commercial poultry farms. The proportion of wives conducting poultry farming activities is lower, while the rate of husband activities is higher. Wives were most often involved in activities such as sale of products, feeding, watering, and cleaning the chicken house, while husbands are most often involved in other activities such as veterinary prevention and treatments.

According to the description above, output of household poultry enterprises depends on the number of birds on the farm, the amount of various feed inputs provided by the farmer, garden area where birds can search for food, the amount of labour spent on taking care of birds, capital, and veterinary input (measured in veterinary cost)..

Research hypotheses

According to the analysis in the previous section, we assume that the poultry production output at the farm level depends on the number of birds, feed amount, labor amount, garden size, income level, and veterinary costs.

We expect that the number of birds per farm and the feed amount is positively related to the amount of output. We assume that semi-subsistence and semi-commercial production systems not only rely on provided feed, but also on scavenging in household gardens. Garden size has positive relationship with production capacity. We also expect labour amount to be positively related to output, because more labour invested, results in more care, which should lead to higher output. Total household income may have positive or negative impact on poultry production capacity. Disease costs for poultry health care per farm per year, which includes medicines, administration costs may either be positively or negatively related to production.

Data and methods

Sample selection

The analysis was carried out based on survey data from 12 villages in the two provinces of Thai Binh and Thanh Hoa. The villages were purposively selected as representatives for their agro-ecological area. The four villages in Nam Trung commune, Thai Binh province were selected as representatives for lowlands, the four villages in Thanh Tien commune, as representatives for midlands and the other four village in Quan Hoa, Thanh Hoa province as representatives for Mountainous area.

Design of the study

The selection of households within the study area was done using stratified and systematic random sampling techniques. The survey covered a total of 360 households. 120 households were selected for data collection in each area. In order to ensure adequate representation of two groups of poultry keepers, the poultry producers in each village were stratified into two groups of semi-subsistence and semi-commercial poultry farms based on the two criteria of current flock size and feeding regime.

Semi-subsistence poultry farms: Households, whose family have 1-50 scavenging birds, which are given a very limited amount of feed besides what the birds get from scavenging.

Semi-scavenging poultry farms: Households, whose family have a flock of more than 50 and the birds are fed with grain and high quality feed combined with scavenging in garden areas.

Poultry farm groups were developed using the following method: In each village, a meeting was held with the village leader, one representative of the farmer association, one representative of Women's Union and a commune animal health worker to split poultry farms into the two groups based on the lists of households in each village. Finally, the poultry farms were systematically selected to be representatives for their own region and production systems.

Research methods

The information was collected using formal questionnaires for household interview. The interviews were conducted at household premises. Household members were explained clearly about the purpose of the study in order to provide as reliable information as possible. The interviewees were asked to provide information on a recall basic, so they had to rely on memories of household members. In many cases, both husband and wife were at the interviews, so that they could complement each other to give very detailed information about their farms.

A questionnaire assessing basic information at household level was designed in accordance with a set of indicators. The selection of indicators reflected the objectives of the study.

In order to assist in data collection, two assistants were selected and trained in each area. The assistants were selected locally as they understand well the local farming systems, culture and local languages, and they could conduct the interviews during the day or at night depending on when farmers are available. Households were given a small gift as incentive and compensation for the time dedicated to talking with the researchers.

The assistants were trained about objectives of the study, data collection and questionnaire procedures. After the training, assistants and author carried out pre-testing to check the appropriateness and relevance of the questionnaire in term of sequences and wording of questions. After pre-testing, the questionnaire was improved accordingly.

The field assistants with the help of the author carried out the actual surveys. Almost all interviews were conducted with the participation of more than one family member, so that each person could contribute with information relevant to the activities known to them. For example, heads of households normally would know more about the amount of land that they own, while his wife is better able to provide information on variable inputs related to animal husbandry.

Data analysis methods

In order to examine the above-mentioned hypotheses, the following model is applied:

Y = f(X₁,X₂, X₃, X₄,X₅,X₆) (1)

Where:

Y is output of poultry products;
X₁ is number of birds
X₂ is amount of feed
X₃ is garden size
X₄ is amount of labour
X₅ is household income
X₆ is veterinary costs
f( ) is a production function

All data are based on individual farm observations. The data was prepared as follows:

Per farm poultry output

As described in previous section, outputs of household poultry enterprises include a number of products, which can be used for home consumption or sold on the market. These products include eggs, chicks, growers, broilers, hens, cocks and other poultry species such as ducks or geese. In order to measure the output level, different products had to be aggregated into one measurement unit. We used two alternative methods for aggregating output data.

The first method is based on output-values. Output is simply measured by value. i.e. in Vietnamese currency unit.

where: 
Yi is output of i´th-farm (i = 1,…., 360), 
W_ik is market price of ith-farm for product k, and 
Z_ik is the quantity of product k (including home consumption and/or sale) for the ith farm. 
The index k is a product index, including eggs, chicks, growers, broilers, hens, cocks, and other poultry species products.

This method of aggregating is simple and easy to apply, because the quantity of the different categories of products used for home consumption or for market sale and their respected prices were collected.

The second method of aggregating production data was based on the Laspeyere's quantity index:

where: 
Y_i is output of ith-farm (i = 1,…, 360), 
W_k0 is the price that the base farm received for poultry product k, 
Z_ki is quantity of product k for the ith farm, and 
Z_k0 is quantity of product k for the base farm.

Per farm inputs

Number of birds per farm (X₁)

The different types of birds were converted into "chicken unit" by using the following formula:

Where: 
X_1i is number of "birds" raised on the ith-farm and 
W_k is average price of the k'th-category of birds (chicks, growers, broilers, cocks, hens and other), 
X_ik is number of birds in category k on farm i (chicks, growers, broilers, cocks, hens and other), and 
W_b is average price of broilers.

Amount of feeds (X₂)

Feed used for household poultry enterprises is also includes a number of different feed items, consisting of paddy, broken rice, maize, cassava, concentrate and other. To measure feed input, we use two alternative methods to aggregate the different feed items:

In the first method, the total feed amount is measured in energy units (Kcal). We assumed that the quality of each type of feed is similar for all sample farms. All feed types used for poultry are converted into Energy unit (Kcal) by multiplying the quantity of each type of feed used with its calorie content.

In the second method, the total feed amount is measured in monetary values (thousand of Vietnamese currency units). All feed types used for poultry are valued at market prices. We also assumed that the average price for each type of feeds is similar for all sample farms in the same region.

Garden size (X₃)

Garden area is measured in m² per farm. We use garden size as a one input, since in household poultry production, birds are left to scavenge in garden to search for food besides what they are fed by the farmers.

Amount of labour (X₄)

The labour is measured in person-hours. In both poultry production systems, mainly wives performed almost all poultry farming activities including feed preparation, feeding, watering, and shelter cleaning to poultry sale. However, sometime husbands or children also participated.

Household income (X₅)

Total household income (thousands VND/farm/year), was used as a proxy of capital input. In order to maintain and develop the poultry enterprise, some investment is required.

Disease costs (X₆)

Disease costs for poultry health care per farm per year, which includes medicines and administration costs.

A summary of data from the 360 farms is shown in Table 1

After all input and output data were prepared, all independent and dependent variables were re-scaled around the value of 1 by dividing each variable by the average value.

Parameter estimation and tests

Function specification

A Cobb-Douglas function was chosen as the functional form of the production function. The reason for choosing this type of production function is that it is linear in its logarithmic form, and therefore easy to estimate by using ordinary least squares estimation technique (OLS). At the same time, this function type has been widely used for production function analysis by many authors (Beringer 1956; Heady 1951; Seyoum et al 1998). The function has the following form.

Where: 

Y_i is poultry output of the i'th-farm 
X_1i is Number of birds
X_2i is Feed amount
X_3i is Garden size
X_4i is Labour amount
X_5i is Total household income
X_6i is Disease costs
and a, _{β1, …, β6} are parameters to be estimated and e_i is an error term.

Prior to the model estimation, the variables were examined for multi-co-linearity. We found that there are high correlations (coefficient of correlation, r>0.75) between X₁ and X₂ and between X₁ and X₄. In order to reduce estimation problems, we divided X₂ by X₁ and X₄ by X₁ to create two new variables: X₂₁ (feed amount per bird) and X₄₁ (labour per bird).

The revised model is therefore:

Taking logarithms on both sides, we get:

ln(Y_i )= ln(a) +β*₁lnX_1i + β₂lnX_21i+ β₃lnX_3i+ β₄lnX_41i+ β₅lnX_5i + β₆lnX_6i + e_i

The parameters β*_1, β_2, β_3, β_4, β_5, and β₆ were estimated using Ordinary Least Squares analysis (OLS) and after estimation the value of β₁ was estimated as,

The hypothesis is that there may be differences both between production systems and between regions. To account for these potential differences, and to establish an appropriate econometric model for testing these differences, dummy variables were added for both production systems and regions as follows:

D = dummy variable for production systems. D = 1 for semi-subsistence and D = 0 for semi-commercial production system.

R₂ = dummy variable for regions: R₂ = 1 for midland, and R₂ = 0 for otherwise, 

R₃ = dummy variable for highland: R₃ = 1 for highland, and R₃ = 0 for otherwise

The complete model therefore has the following form.

lnY_itr     = (α ₀ + α ₁D + α₂R₂+ α₃R₃) + (β*₁+ β*₁₁D+ β*₁₂R₂ + β*₁₃R₃) lnX₁

 + (β₂+ β₂₁D+ β₂₂R₂ + β₂₃R₃) lnX₂₁ + (β₃+ β₃₁D+ β₃₂R₂ + β₃₃R₃) lnX₃

 + (β₄+ β₄₁D+ β₄₂R₂ + β₄₃R₃) lnX₄₁ + (β₅+ β₅₁D+ β₅₂R₂ + β₅₃R₃) lnX₅

+( β₆+ β₆₁D+ β₆₂R₂ + β₆₃R₃) lnX₆   + e_itr                                

where t refers to production system and r refers to region.

The model assumes a single additive effect of either production system or region on each parameter. However, the model does not include any interaction between region and production system. Such an interaction may exist, but is not tested here, because of the limited data set.

Findings

Estimated parameters of the full model

The model in (4) was estimated using Ordinary Least Squares Analysis (OLS) All estimations and tests were performed using the procedure REG in SAS ver. 8.02 ((SAS/STAT Guide for Personal Computers Version 6 Edition). The estimated parameters are shown in Table 1A in the Appendix.

The R-sq value is 0.76 indicating that the independent variables included in the production function explained about 76% of the variations in the production of poultry of both groups of semi-subsistence and semi-commercial poultry farms.

The parameters β*_1, β_2, β_3, β_4, β_5, and β₆ are the production elasticities for the semi-commercial production system in the Lowland region, i.e. the relative change in production divided by relative change in the amount of the input in question. Elasticities for the other production system and regions are estimated by adding the parameters of the relevant dummy variables. All the elasticities for the semi-commercial production system in the Lowland region have a positive sign as expected except β₃ (which is not statistically different from zero). The production elasticities are as follows: Number of birds: 0.73. Feed per bird: 0.63. Garden size: 0. Labor per bird: 0.14. Household income: 0.28. Disease cost: 0.11. Thus, for instance, the production increases by 7.3 % when the number of birds increases by 10 % (conditional on unchanged feed per bird and unchanged labor per bird) and by 6.3% when the amount of feed per bird is increased by 10%.

The coefficients of the dummy variables both have positive and negative signs. To analyze the possible differences between production systems and regions, a number of tests described in the following were performed. All the tests were carried out as F-tests on a 5 % test level. (Griffiths et al 1993).

Test of full model

The first test is the following (here and in the following, the term H₀ refers to the hypothesis to be tested against the alternative hypothesis H₁)

Test 1.  Whether there are no differences, neither between production systems nor  regions?
Ho:	All regions and systems are equal	α 1 = β*11 =  β21 =  β31 =  β41= β51= β61=α 2 = α 3 = β*12 = β*13 = β22 = β23 =   β32 = β33= β42 = β43= β52 =β53 =β62 = β63=0
H1:	At least one system or region is different	α 1 or  β*11 or β21 or  β31 or  β41or β51or β61 α 2 or α 3 or β*12 or β*13 or β22 or β23 orβ32 or β33or β42 or β43or β52 orβ53 orβ62 or β63≠ 0

The F-test rejects H₀ (accepts H₁). The F-value is 1.76, compared to an F-value of 1.55 at the 5% significance level. Therefore, at least one of the regions or one of the production systems is statistically different from the others when based on the total data set. Therefore the following two tests were performed:

Test 2.  Whether there is a difference between production systems?
Ho:	All systems are equal	α 1 = β*11 =  β21 =  β31 =  β41= β51= β61 = 0